How To Pay Tuition With A Credit Card – Forbes Advisor -

How To Pay Tuition With A Credit Card – Forbes Advisor

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According to the College Board’s Trends in College Pricing 2021 report, the average public college tuition was $10,740 per year, while a private education costs $38,070. These are steep numbers to send your children to college. While scholarships and financial aid can take a chunk out of these expenses, millions of students will have to pay thousands in tuition fees. The good news? You might be able to pay tuition with a credit card and earn rewards on your spending.

A limited number of colleges let you pay tuition with a credit card without tacking on a fee. Others accept payments through third-party processing services that charge a percentage fee. Beyond fees, there are numerous pros and cons to paying tuition with a credit card. Here’s a look at how to pay tuition with a credit card and whether it’s worth it:

Find The Best Credit Cards For 2022

No single credit card is the best option for every family, every purchase or every budget. We’ve picked the best credit cards in a way designed to be the most helpful to the widest variety of readers.

Colleges that Don’t Charge Fees for Paying Tuition with a Credit Card

Before diving into credit card payment fees, it’s worth noting that not all universities charge them. As of this writing, here are some of the schools where you can make fee-free tuition payments with a credit card:

  • University of Nevada, Las Vegas
  • State University of New York (SUNY) Binghamton
  • SUNY Buffalo
  • SUNY College of Environmental Science and Forestry
  • SUNY Stony Brook
  • SUNY Albany

Note that there are likely other schools that don’t add a surcharge for tuition payments with a credit card. Check with your institution’s campus financial department or reach out to the bursar’s office to find your school’s policy.

Coincidentally, the schools mentioned above have lower-than-average tuition fees compared to the national average. In fact, annual in-state tuition for all five institutions is under $11,000 per year. Paying that with a rewards credit card would generate at least 44,000 points across four years. More on that later.

Ways to Pay Tuition with a Credit Card

There are two primary ways to pay tuition with a credit card: Direct and through a third-party payment system like Plastiq. Most colleges accept credit cards for tuition payments for a 2.5% to 3% fee. This amounts to around $25 to $30 per $1,000 payment. That can really add up, especially at private universities, which have higher tuition costs and limited financial aid.

Interestingly enough, none of the Ivy League universities accept credit cards for tuition payments, except for the University of Pennsylvania. The university’s payment vendor applies a 2.85% fee on credit card transactions.

Plastiq, a payment processing service, charges the same fee. The site allows you to pay virtually any bill with a credit card, including college tuition. The advantage of using Plastiq is that they accept all card types, including American Express. The downside of using Plastiq is that payments are not instantaneous. Payment processing takes 1-3 business days to complete.

Why You Should Pay Tuition With a Credit Card

Paying a fee to earn rewards on college tuition isn’t ideal, but it can work out favorably in some instances. You might earn valuable rewards that outweigh the fees you’re paying. You may have a spending requirement to complete. Financing through a credit card could also be a solid option for short-term loans. Think carefully about whether paying fees to earn points makes sense for you and what the long-term financial repercussions might be.

Earn Credit Card Welcome Bonuses

It’s no secret that rewards credit cards offer lucrative welcome bonuses when you meet specific spending requirements. These welcome bonuses often require you to spend anywhere between $1,000 up to $15,000 within an introductory period of time to earn lucrative bonuses. Depending on the type of rewards and how you leverage them, you can get thousands of dollars in cash back for travel. The value of these rewards can far outweigh any transaction fees you’d pay on tuition to earn those rewards.

Sometimes the recurring rewards from a credit card can also be higher than the fees you’re paying. For example, the Discover it® Miles earns 1.5 miles per dollar of every purchase and has an unlimited match of all the miles earned at the end of the first year. You’re still coming out ahead in year one of card ownership if you’re incurring a 2.5% fee on tuition payments and earn 3% cash back.

Another example is The Blue Business® Plus Credit Card from American Express (Terms apply) which earns 2 Membership Rewards points per dollar on everyday business purchases such as office supplies or client dinners up to the first $50,000 in purchases per year, then 1 point per dollar on all other purchases. Membership Rewards points can be worth up to two cents per point when redeemed for premium travel. So you would effectively earn 4% in rewards for your tuition payments which is less than the processing fee. Of course, the actual value of a currency depends on how you redeem it. If you use your points for high-end travel awards, you can get well over four cents per point in value, while low-cost economy awards might get you less than two cents per mile.

Setting travel goals before earning rewards will help you determine whether paying fees to earn points on tuition payments makes sense for you.

Score Annual Rewards

Some credit cards offer annual rewards for meeting set spending thresholds. Rewards can range from elite status to free hotel nights, companion passes and bonus miles. The spending requirements on recurring rewards can be steep, but high expenses like tuition payments can help you get there.

You’ll want to consider the value you can personally extract from these rewards against the fees you’re paying to earn them. A few examples of annual spend-based rewards include the following:

Take Advantage of an Intro 0% APR Offer

According to the Education Data Initiative’s 2022 report, the average student loan interest rate is 5.8% among all existing borrowers. That’s higher than the 2.5% to 3% transaction fee on credit card tuition payments. Factor in that there are many credit cards that offer an intro 0% APR for up to two years and if you can pay off your tuition balance within that period, paying a 3% transaction fee might make more sense than paying 5.8% interest.

Of course, the interest on those offers usually reverts to the card’s standard double-digit APR after the introductory period. So if you need a long-term loan for your tuition, it makes more sense to go the traditional student loan route.

Why You Shouldn’t Pay Tuition with a Credit Card

While paying tuition with a credit card can be rewarding, there is also a lot of cost and risk involved. For starters, you’ll pay credit card processing fees in most cases, along with interest if you don’t pay the balance in full every month. Even if you qualify for a 0% APR offer from your credit card, you’ll need to pay your balance off before the term ends to avoid high interest fees.

Lastly, charging tuition to your credit card increases your credit utilization rate. This rate is determined by your total debt compared against available credit and makes up 30% of your FICO score. You should keep your credit utilization rate under 30% for optimal credit health. If charging tuition to your credit card increases your utilization rate beyond 30%, you might want to forgo this option. The short-term benefits may not be worth the long-term impact on your credit score.

Bottom Line

Most people want to optimize their largest expenses via credit card rewards. College tuition is at an all-time high and what better way to make lemonade out of a sour situation? With the right credit card, you can pay your college tuition and earn valuable rewards or even cash back. If your college doesn’t charge a processing fee and you have a 0% APR offer through your credit card, it can absolutely be worth it. Especially if your tuition is reasonable and you plan to pay it off in the short term.

Despite the notable benefits, there are risks to paying your tuition with a credit card. You’ll incur fees and possibly even high interest rates if you don’t pay your card off on time. Most people can’t afford to float the money for tuition payments and might be better off with a traditional student loan. However, if you regularly pay your tuition in full and can leverage points for high-value redemptions, then paying tuition with a credit card can be worth it.

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